House of Representatives

Tax Laws Amendment (2012 Measures No. 2) Bill 2012

Pay As You Go Withholding Non-compliance Tax Bill 2012

Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Companies' non-compliance with PAYG withholding and superannuation guarantee obligations

Schedule 1 to this Bill strengthens directors' obligations to cause their company to comply with its existing Pay As You Go (PAYG) withholding and superannuation guarantee requirements. These amendments reduce the scope for companies to engage in fraudulent phoenix activity or escape liabilities and payments of employee entitlements by:

extending the director penalty regime to make directors personally liable for their company's unpaid superannuation guarantee amounts;
ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when PAYG withholding or superannuation guarantee remains unpaid and unreported three months after the due date; and
in some instances, making directors and their associates liable to PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the Commissioner of Taxation (Commissioner).

Date of effect : Broadly, these amendments will commence on the day on which this Bill receives Royal Assent.

Proposal announced : These proposals were announced in the 2011-12 Budget, confirming an election commitment of 8 August 2010.

Financial impact : The revenue impact of this measure is as follows:

2011-12 2012-13 2013-14 2014-15 2015-16
$10m $40m $95m $95m $60m

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.163 to 1.167.

Compliance cost impact : The compliance costs associated with this measure are estimated to be a small increase in compliance activities for certain directors and their associates. The costs, for the most part, are for companies who would be actively seeking to avoid their tax and superannuation obligations to gain an unfair competitive advantage.

Summary of regulation impact statement

Regulation impact on business

Impact : This Schedule deters companies from engaging in fraudulent phoenix activities and improves the regulatory environment for businesses that comply with the tax law by paying PAYG withholding to the Commissioner and superannuation guarantee for the benefit of employees. This is achieved by providing disincentives for companies and their directors that do not comply with their tax law and employee obligations.

Main points :

These amendments are not expected to increase compliance costs or operating costs for companies or company directors who are already causing their company to comply with its existing tax or superannuation obligations.
These amendments reduce the incentive for companies to engage in fraudulent phoenix activities or to avoid payment of liabilities in order to undercut other companies who are complying with their tax and superannuation obligations.
Expanding the director penalty regime to superannuation guarantee improves the likelihood that employees receive the superannuation contributions they are entitled to.

Amendments to the TOFA consolidation interaction and transitional provisions

Schedule 2 to this Bill amends the taxation of financial arrangements (TOFA) consolidation interaction provisions in the Income Tax Assessment Act 1997 and the transitional provisions in the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (TOFA Act).

The amendments to the TOFA consolidation interaction provisions ensure that the tax treatment of financial arrangements that are part of a joining/consolidation event is consistent with the TOFA tax timing rules and that the tax treatment of liabilities that are, or are part of, a financial arrangement takes into account changes in the value of the liability other than the repayment of the liability.

The amendments to the TOFA transitional provisions ensure that the TOFA consolidation interaction provisions apply where:

a joining/consolidation event occurred prior to a consolidated group starting to apply the TOFA provisions in relation to its financial arrangements; and
the head company has made an election to apply the TOFA provisions to its existing financial arrangements.

Date of effect : The TOFA consolidation interaction and TOFA transitional amendments commence from the commencement of the TOFA Act (that is, 26 March 2009). The TOFA consolidation interaction provisions apply from taxpayers' first TOFA applicable income year. The TOFA transitional amendments apply from their commencement.

Proposal announced : These amendments were announced in the then Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 159 of 25 November 2011.

Financial impact : These amendments are expected to protect a significant amount of revenue over the forward estimates and generate a revenue gain of $253 million over that period.

2012-13 2013-14 2014-15 2015-16
$66m $46m $61m $80m

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.94 to 2.99.

Compliance cost impact : These amendments clarify the operation of the TOFA consolidation interaction and TOFA transitional provisions. This provides more certainty for consolidated groups applying the TOFA provisions in relation to their financial arrangements.

Consolidation

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to modify the consolidation tax cost setting and rights to future income rules so that the tax outcomes for consolidated groups are more consistent with the tax outcomes that arise when assets are acquired outside the consolidation regime.

Date of effect : The changes affecting a corporate acquisition will depend on the time when the acquisition took place. That is, different changes apply to, broadly, acquisitions before 12 May 2010, after 30 March 2011 and the intervening period. For corporate acquisitions that, broadly, took place before 12 May 2010, the changes prevent the retrospective operation of unintended effects of, and perceived weaknesses in, amendments to the law that were made in 2010. These changes are necessary to protect a significant amount of revenue that would otherwise be at risk.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 159 of 25 November 2011.

Financial impact : The measure has a nil revenue impact. However, it does protect a significant amount of revenue that otherwise would be at risk over the forward estimates period.

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.136 to 3.139.

Compliance cost impact : Low.

Managed Investment Trust final withholding tax rate

The Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 amends the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 to increase the Managed Investment Trust (MIT) final withholding tax from 7.5 per cent to 15 per cent on fund payments made in relation to income years that commence on or after 1 July 2012.

Schedule 4 to Tax Laws Amendment (2012 Measures No. 2) Bill 2012 makes consequential amendments to the Taxation Administration Act 1953 to give effect to the increase in the concessional MIT final withholding tax rate imposed by the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012.

Date of effect : The amendments apply from 1 July 2012.

Proposal announced : The measure was announced as part of the 2012-2013 Budget.

Financial impact : Expected to generate approximately $260 million, in revenue, over the forward estimates.

2012-13 2013-14 2014-15 2015-16
$50m $65m $70m $75m

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.10 to 4.13

Compliance cost impact : Low.


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